Getting the best deal… at the expense of local businesses?

Recently, we lost a tender for a government order because the we quoted about 20% more expensive than the one who won. 

The staff in the organization called me in frustration because he could tell that the business who quoted cheaper was simply a trader who promised he could deliver within 3 weeks, even though he did not keep stocks in Singapore. He would simply order it from overseas to sell to them. 

Some tell-tale signs, the address is a Condominium in Woodlands, and the sole-prop was only formed 1 year ago.

This is unlike our business where we worked with factories to create products suited for Singapore market, order in bulk and had to pay for warehousing, staff and cost of credit. In this aspect, we are well worth the 20% increase in price compared to the cheapest seller.

However, he could not convince his superior, who felt a cheaper price trumps all other consideration, even if it comes at risk of not meeting the timeline or poorer quality products. The justification was that they made the best choice at the point of tender closing, and they would deal with the consequences if the products did not come in time, or had product quality issues thereafter.

At least in this way, if auditors checked on this transaction, they would have an easier time explaining the circumstances so that no audit issues will be raised. With this mindset, government procurement processes will kill local SMEs who are trying to make a difference by designing their own products, keeping ready stock in Singapore, employing staff to maintain operations which would benefit the economy more than a lone trader. 

There is no easy answer about how to skew procurement projects towards local SMEs, but these are some suggestions I have.

1. Require a Local Showroom or Warehouse: Tender applicants should be required to have a physical presence in Singapore, such as a showroom or warehouse where the government can view samples and ensure product quality firsthand.
2. Mandate a Proven Track Record: Suppliers should provide evidence of their ability to deliver, such as testimonials from other customers or case studies that demonstrate their capacity to meet local needs and deadlines.
3. Detailed Product Specifications: Tender documents should include clear, detailed product specifications to prevent companies from submitting subpar products that merely “meet” the minimum requirements. This would help avoid situations where cheap, poor-quality goods end up being delivered.

Ultimately, procurement decisions should take into account more than just price. While we all want to save costs, the long-term consequences of choosing the cheapest option—be it delayed deliveries or poor-quality products or harming the local business ecosystem—can be far more costly than a slightly higher initial investment.